SEBI asks listed firms to split CMD post by 2020

SEBI has asked listed companies to split the post of Chairman and Managing Director by April 2020. It has also made it compulsory for them to have six independent directors on board, including a women director. The changes, which were first recommended by Kotak Bank chief Uday Kotak-led committee on corporate governance seven months ago, have now been accepted and notified by SEBI. It has also asked the top 100 listed companies to webcast annual general meetings.

For implementation of changes with regard to split of CMD post, SEBI has set a deadline of April 1, 2020. The deadline for independent directors and other rules is April 1, 2019, a circular issued by the regulator said.

Most companies in India have integrated post of Chairman and Managing Director, which experts in Kotak committee felt overlapped the board and management. Under the new norms, the top 500 listed entities will have to ensure that the chairperson is a non-executive director from April 1, 2020.

A person cannot hold directorship position in more than eight listed entities from April 1, 2019 and in not more than seven listed firms from from 2020. Further, SEBI said a person will not serve as an independent director in more than seven listed entities.

Regarding related party transaction, SEBI said any person or entity from the promoter group, holding at least 20 per cent stake in listed company, will be ‘deemed to be a related party.’ Also, shareholder approval would be required for making royalty or brand payments to related parties exceeding 2 per cent of consolidated turnover. Shareholder approval will also be required each year for annual remuneration payable to a single non- executive director, which the amount exceeds 50 per cent of the total annual remuneration payable to all non-executive directors. Further, shareholders nod will required even if the annual fee payable to executive director, who is part of promoter entity, exceeds ₹5 crore or 2.5 per cent of the net profits of the listed entity.

Auditor credentials

Companies will have to make disclosure about auditor credentials, audit fees and any material change in such fee as well as detailed reasons for resignation of auditor. Board evaluation carried out for the year, previous year’s observations, actions taken, proposed actions based on current year observations will have to be disclosed.

Top 100 listed companies will have to hold their annual general meetings within five months from the date financial year closing. Details about utilisation of funds raised through qualified institutional placement and preferential issues will have to be disclosed by companies in their annual reports.

SEBI said from October 1, 2018, any changes in ‘credit ratings’ of listed companies’ outstanding instruments have to be updated ‘immediately’ and a risk management committee for cyber security will have to be set up.

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